When tracking the overall market, knowing the most common support and resistance levels to look for offers a huge advantage. Why? Because it allows investors to more accurately gauge and predict future movements while performing their analysis.
On my other blog, TraderMike.net, I frequently note these common support and resistance levels when doing my daily market recaps. Most are easily identified by simply setting up the stock chart correctly (see my list of the best free stock chart websites) and the others take only a moderately trained eye.
Below I break down the top 5 most common areas where you will see the overall market (most often represented by the NASDAQ, S&P 500, Dow Jones, and Russell 2000) find support or resistance. Learn to spot them and you will be one step closer to performing technical analysis like the pros.
1. Weekly and Monthly highs/lows (horizontal trend lines)
The most common identified areas of support or resistance for the overall market are weekly and monthly highs/lows. Because the market is constantly creating new trends there are always these easily identifiable points on the charts. While not all act as true support or resistance, the ones that do tend to be critical as they can make or break a trend.
2. 50 Day Moving Average
The 50 Day Moving average (50 MA) is a line that is formed by taking the average closing price of a stock over the last trailing 50 trading days. When the market is in a steep correction or a prolonged uptrend, this moving average is commonly seen as resistance and support (respectively). Almost all stock chart websites offer the 50 MA as a technical indicator overlay because it is so commonly used by investors.
3. 100 Day Moving Average
The 100 Day Moving average (100 MA) is a line that is formed by taking the average closing price of a stock over the last trailing 100 trading days. The 100 MA is not seen as freuqently as the 50 simply because it typically draws further away from the trend. When it does come into the picture however it is very often noted.
4. Fibonacci Retracement Levels
Fibonacci Numbers are slightly more advanced, but in their simplest form make up the key Fibonacci levels: 38%, 50%, and 62%. They are drawn on stock charts by taking the absolute high and low of a move and then determining the appropriate levels in between. Some investors use them religiously while others may only refer to them after larger more notable market swings. Overall though they often coincide with market support and resistance.
5. 200 Day Moving Average
The 200 Day Moving average (200 MA) is a line that is formed by taking the average closing price of a stock over the last trailing 200 trading days. This powerful line is not often seen coming in contact with market prices due to its long term calculation. But, when it does come into the picture the market almost always reacts to it as either support and resistance.